China's GDP grew by 7.4% in the third quarter of 2012, representing a sharp slowdown from previous years. Growth has fallen below the target range of 9-10% due to factors such as falling exports and imports, a decline in industrial output, a collapse in real estate investment, and falling consumer prices. Unemployment remains low at 4.1% as China focuses on job creation. China runs a current account surplus equivalent to around 4% of its GDP and has large foreign exchange reserves of over $3 trillion. The government is focusing fiscal policy on tax cuts and spending on education, healthcare and social programs to boost domestic consumption.

1. CHINA
MACRO ECONOMICS
GROUP 1
I MBA A
MBA A G1 1

2. Prepared By:
•Aarathy Jayakrishnan
•Agil V Joseph
•Amrita Banerjee
•Anantha Kumar G M R
•Anuroop
•Arun S
•Ashis Kumar Nayak
•Avinnash B Premanand
•Babish Kumar P M
•Venkatraman S
•Pooja Chhotray
2

3. ABOUT CHINA
3

4. People's Republic of China.
World's most Populous country
Single-party state governed by the Communist Party of China
4

5. Introduction of economic reforms in 1978
World's fastest-growing major economy
It is the world's second-largest economy
United Nations member since 1971
5

6. CHINA
GROSS DOMESTIC PRODUCT
6

7. 7298.10 billion US dollars in 2011
Equivalent to 11.77 % of the world economy
Source: http://www.tradingeconomics.com/china/gdp 7

8. 8

9. CHINA
GDP GROWTH RATE
9

10. Chinese GDP grew by 7.4% in quarter 3 down from 7.6% in
quarter 2
It represents A sharp slowdown for china, where GDP grew
9.2 % in 2011 and has averaged an annual rate of around 10 %
for three decades.
Growth is lower than the 9%-10% range from 2008 to 2011
10

11. CHINA GDP GROWTH RATE
11

12. CHINA
REASONS FOR LOW GROWTH RATE
12

13. 13

14. Fall in Exports and Imports
Exports grew 2.7 % year-on-year, less than the 3 % forecast
reflecting global financial crisis
Threats from India, Vietnam and Pakistan offering similar goods
at lower prices
Imports fell 2.6 % against expectations of 3.5 increase due to
weaker domestic demand
Fall in Purchasing Managers Index
The PMI index is based on five major indicators: new
orders, inventory levels, production, supplier deliveries and
the employment environment
PMI fell to 47.8 the lowest since March 2009 caused by
inventories climbing up and export orders falling
National Bureau of Statistics
Source:http://www.ibtimes.co.uk/articles/382407/20120910/china-economy-exports-imports.htm 14

15. 15

16. Fall in Industrial output
Industrial output growth slowed to 8.9% below market
forecasts of a 9.1 % due to slowing new orders
Surveys suggest that manufacturers will run inventories
down further before they can begin to turn production up
again
The growth rate in industrial electricity production, after
spiking early this year, has fallen back sharply to near zero
growth due to decelerating industrial activity
16

17. 17

18. Real estate investment
collapse
Real estate investment, which is a large part of
fixed asset investment, is not picking up due to
changing Government policies
Low average household
consumption
Rise in household savings
Young families aspiring for home ownership
Poor access to insurance claims and loans
18

19. GDP PER CAPITA
GDP per capita rose from $1135 in
2002 to $5432 in 2011 with an
average annual growth of 16.7%
The GDP per Capita in China is
equivalent to 21 % of the world's
average
20

20. CHINA
Consumption And Consumer
Market
23

21. China’s consumers spending more than previously believed-
according to the latest revisions to the country’s economic data.
Household spending increased by
about $126 billion spread over eight
years.
 NBS found that household
expenditure was revised up to 11.06
trillion Yuan, an increase of 220.23
billion Yuan.
 China will be the world’s second
largest consumer market by 2015
(currently number three behind the
U.S. and Japan)
24

22. CHINA
OTHER ASPECTS OF CHINESE CONSUMPTION
25

23. China is trying to diversify its reserve holdings
Buying more Japanese yen and Korean won.
Diversify PBC holdings has had no disruptive affect on the US
Treasury market.
There is more income inequality.
26

24. CHINA
INVESTMENT
27

25.  According to the statistics of news release of foreign investment, from
January to August 2012, the actual use of foreign investment reached
US$ 74.994 billion, down by 3.4% year on year.
According to statistics by MOFCOM, in January – August 2012, Chinese
investors made direct investment overseas in 2708 enterprises in 119
countries and regions, with total non-financial direct investment
overseas amounted to US$ 47.68 billion, up by 39.4% year-on-year.
28

26. China’s investments are growing in frequency and in diversity across
sectors.
2012 has brought a variety of transactions, from Shandong Heavy
Industry’s buyout of Italian yacht maker Ferretti, to Shanghai Bright
Food Group’s investment in England’s Weetabix breakfast
brand, and most notably, here in the U.S., where Dalian Wanda
purchased the AMC movie theater chain.
29

27. According to the Rhodium Group, a policy think
tank, Chinese investment in the European Union
reached $10 billion in 2011.
Chinese investment increase dramatically
from a total of $3 billion in all of 2011 to $8 billion later
part of 2012
30

28. CHINA
GOVERNMENT SPENDING
31
Source: The National Bureau of Statistics, China

29. CHINA
GOVERNMENT REVENUE
32

30. GOVERNMENT REVENUE
33

31. GDP is worth $7298 US billion dollars.
GDP Annual Growth is around 7.4% as on Oct 2012.
Sources of China’s Revenue comes from taxes through
consumption, corporate income, personal income and
imports.
34

32. CHINA
CHINA’S EXPENDITURE
35

33. CHINA’S EXPENDITURE
Society,Culture and
20% Education
27% Economy
Development
National Defence
19%
Administrative
Expenses
27%
7% Others
36

34. China’s Government Spending is around 23% of its GDP.
Main Expenditure spent on
society, culture, education, National defense and other
administrative expenses.
national defense is comparably decreased slightly from 10%
in 2000 to 7% in 2011.
The reason behind is, it started spending more in building
infrastructure and in Education.
37

35. CHINA
EXPORTS VS IMPORTS
38

36. China has Net Exports constitutes 5.4 % of its GDP
The balance trade (Net Exports – Net Imports) has worth
about $325 Billion US dollars.
China exports to countries like U.S., Japan, U.K and South
Korea and imports from U.S., EU, Hong Kong, Japan, ASEAN.
The reason is china wants to grow its economy faster and
wants to appreciate its Currency Yuan in the Global Economy.
39

37. CHINA
% CURRENT ACCOUNT
40

38. % Of Current Account Surplus to GDP
12.00% 10.60%
9.30% 9.60%
10.00%
8.00% 7.10%
6%
6.00% 5.20%
3.60% 4%
4.00%
2.40% 2.80%
2.00%
0.00%
Jan-02
Jan-03
Jan-04
Jan-05
Jan-06
Jan-07
Jan-08
Jan-09
Jan-10
Jan-11
41

39. Current Account is the sum of balance trade, factor income
and cash transfers.
China has Current Account as 4% of its GDP.
China has Current Account Surplus of 59.70 Billion US
dollars.
The Current Account represents the level of China’s
International competitiveness.
42

40. CHINA
INFLATION
43

41. The inflation rate in China was recorded at 1.7 % in 2012.
44

42. Inflation Rates 2012
The prices grew by 1.8 % in cities and 1.5 % in rural areas.
The food prices went up by 1.8 %, while the non-food prices
increased by 1.7 %.
The prices of consumer goods went up by 1.5 % and the
prices of services grew by 2.3 %.
The overall consumer prices were up by 2.7 % over the same
period of the previous year.
45

43. Reasons For Lower Rates
China's economy has been hurt by falling demand for its
exports and a slowdown in investment in the country.
Demand for its exports has been hit by continuing economic
problems in key markets such as the US and Europe.
China has been keen to boost its domestic consumption in a
bid to rebalance its economy and sustain growth.
46

44. CHINA
UNEMPLOYMENT
47

45. Unemployment rate is 4.1% in 2012
4.3 4.3
4.3
4.25 4.2 4.2
4.2
4.15 4.1 4.1 4.1 4.1 4.1 4.1 4.1 4.1
4.1
4.05
4
48

46. Why lower unemployment rate??
China has created 6.94million new job in first six month of
2012
2.94million laid off workers are reemployed in first six month
of 2012
Expansion of labor intensive industries towards central &
western region
Lower tax rate for small industries
Government has taken supportive measure for small & mid
size enterprises
49

47. CHINA
FOREIGN EXCHANGE RESERVES
50

48. Current Reserves – 3.24 trillion USD
Average Foreign Exchange Reserves – 525258.41 Million USD
Highest Value – 3.3 trillion USD ( Feb 2012)
Lowest Value - 2262.0 million USD (Dec 1980)
Status – Continuously Growing since 1980
51

49. Reasons for Continuous Growth of Forex
Increase in capital items
FDI
-185.1 Billion USD (2010)
- 3.1% of GDP (2010)
Foreign Debt
- 25% of US Foreign Debts
Exports
- 31.4 % of GDP in 2010 ( 1.86 Trillion USD)
52

50. Current Trend
China is cutting back its purchases of US securities as it seeks to diversify
away from the dollar ( 54 % )
China’s FDI inflow declined by 3.45 % - Reuters
Exports declined from to 8.8% in 2011 ( 644 million USD )
China faces crisis without economic reforms - World Bank
53

51. CHINA
FISCAL POLICY 2012
56

52. • National revenue is 11.36($1.82) trillion Yuan, up by 9.5%.
• Total available national revenue is projected to be 11.63
trillion Yuan.
• Total expenditure exceeds total revenue by 800($128.45)
billion Yuan (including the 550($88.31) billion Yuan central
government deficit), 50($8.02) billion Yuan less than last year
and bringing the deficit down to approximately 1.5% of GDP.
Source :China NPC & CPPCC Sessions 2012 57

53. CHINA
FOCUS AREAS OF FISCAL POLICY
58

54. Improve structural tax cut policies to
reduce the burden on businesses and
consumers.
By reducing tax and implementing new VAT policies to help
out small and low profit businesses.
59

55. Increase people's incomes to boost
their purchasing power.
By put into effect a more proactive employment
policy, and implement the minimum wage system and by
increasing government subsidies to raise the incomes of
urban and rural residents.
60

56. Optimize the structure of government
spending to maintain and improve
living standards.
Direct more funds toward the primary level, rural and
remote areas, and groups with financial difficulties; and
more quickly develop education, medical and health
care, social security, employment, low-income
housing, public culture, and other social programs.
Source: National Bureau of Statistics of China 61

57. CHINA
POLICIES IN ACTION
62

58. Investors who hold publicly listed shares for more than one
year will only be liable to pay a 5 % tax on any dividends
earned, down by 5 % from the current rate of 10 %.
To discourage speculative trading, individuals who hold
securities for less than one month will face an increased tax
on dividend of 20 %.
63

59. The Chinese government is shifting from creating preferential
policies for foreign investors towards instead favouring its
local labor pool due to the country’s widening income gap.
Wage hikes will boost domestic consumption to keep the
country’s economy expanding while overseas markets remain
weak.
64

60. China’s Ministry of Human Resources and Social Security
revealed the latest minimum wage levels across China .
Minimum wage levels of more than 1,000 Yuan($160.56).
65

61. CHINA
FINANCIAL SYSTEM
66

62. STRUCTURE OF BANKING SECTOR
67

63. 68

64. MARKET SHARE IN BANKING SECTOR
69

65. REASONS FOR HEALTHY FINANCIAL
SYSTEM
The assets of the banking sector account for around 95 % of
the total assets of all financial institutions in China.
62 % of the fixed-asset investment in China are funded by
banking Sector.
The big four SOE banks are the major players in the Chinese
financial market, with their assets accounting for 52.7 % of
the total bank assets in China.
70

66. REASONS FOR HEALTHY FINANCIAL
SYSTEM
The entire financial system has a high proportion
of savings and investments of the population.
The total value of deposits at the end of 2011, it has
approached to 160% of GDP while the share of these
deposits used by banks to extend credit in the economy
of the country was greater than 100% of GDP.
71

67. CHINA
COMPARISON WITH INDIA
72

68. India has a “mixed economy” with large private sector .
“capitalist market economy” with the associated tendency to
involuntary unemployment.
China was mostly a command economy, which until recently
had a very small private sector, there is still substantial state
control over macroeconomic processes in forms that have
differed from more conventional capitalist macroeconomic
policy.
73

69. TREND OF DEVELOPMENT
The trend of transformation from divided operation to
integrated operation has emerged. Eg: CITIC Group, BOC
Group, Ping An Insurance Group
74

70. Support Stable And Fairly Rapid Growth
CHINA
MONETARY POLICY
75

71. Challenges
Inflationary pressure
Due to local governments’ crave for growth and strong demand for the
expansion of investment as well as the supply of money and credit.
Agricultural Sector
Development of Rural Areas
Stabilize Employment Situation
Internal Drivers Are Yet To Be Strengthened
Slowing Real Estate Sector
76

72. Flexible Open Market Operations
This Enabled the PBC to moderate the fluctuations in liquidity
supply and demand caused by seasonal factors and market
developments, ensuring that liquidity in the banking system
remained stable.
Reserve Requirement Ratio
Raised reserve requirement ratio 6 times by a total of 3 %
points in 2011
77
Source: China Financial Stability Report 2012

73. Dynamic Adjustment Of Differentiated
Reserve Requirement Ratios
Counter-cyclical tool enhance coordination between
credit policy and industrial policy.
Encourage financial institutions to optimize the credit
structure, and to boost credit support to SME.
The Agricultural sector, farmers, rural areas, and on-
going and follow-up key national projects.
Promoted innovation in rural financial products.
78
Source: China Financial Stability Report 2012

74. Leveraging Role Of Interest Rate
Raised deposit and lending rates of financial
institutions 3 consecutive times.
79
Source: China Financial Stability Report 2012

75. Exchange Rate Regime
Enhanced exchange rate flexibility,
Equilibrium level based on market supply and demand in
reference to a basket of currencies
Increased the floating band from .5% to 1% both direction
Total Financing
Introduced to the real economy was as an intermediate
variable for monitoring.
80
Source: China Financial Stability Report 2012

76. CHINA
KEY IMPLICATIONS
82

77. The declining growth of the labour force year
after year
Stronger resource and environmental
Constraints
83

78. 84